Entrepreneurial Brain Drain

Cities, states, and regions often battle to get the best and the brightest young people to live and work in their locales. Part of this competition involves attracting talented individuals, but another part involves keeping them in the place where they were born and raised, fighting what many observers call “brain drain.”

Most of the discussion of brain drain focuses on people who work for others. That’s understandable given how most people are employed.

But a recent working paper by Chad Moutray of the Office of Advocacy of the U.S. Small Business Administration, examines the issue of brain drain among the self-employed. Looking at what happened to the 1993 cohort of college graduates over their first ten years post graduation, he draws conclusions about the problem of entrepreneurial brain drain.

For the most part, Dr. Moutray found that kepping talented young entrepreneurs isn’t all that different from holding on to skilled young employees. He explains, “In labor mobility, the self-employed are very similar to their wage and salary counterparts.”

The study did show one unique pattern for young self-employed people, however. Unlike their salaried counterparts, getting married and having children doesn’t keep the young, self-employed in town.

But home ownership does. In fact, Moutray found that owning one’s own home reduces the odds that the young self-employed will move by as much as 24 percent, twice the effect of home ownership on the mobility of those working for others.

This finding is based on correlations, so we don’t know if home ownership is really causing the self-employed to stick around. A third factor, like the strength of the local job market might be keeping the self-employed in town and encouraging them to buy houses.

But the home ownership effect is big enough that policy makers should investigate it further. If the link between owning a house and sticking around were causal, policy makers could keep young self-employed people around by setting up programs to help them buy their own homes.

Given the recent tightening of mortgage loan standards, particularly on entrepreneurs with highly variable income, such programs would be particularly timely.